As mortgage rates rise heading into the holiday season, potential buyers are holding off on home purchases hoping for more favorable conditions in the new year.
Officials at Freddie Mac reported Thursday that last week the 30-year fixed-rate mortgage averaged 6.72%, up from 6.54% the week prior. This is the fifth consecutive week of increases, and their highest level since August.
That news makes recent projections a source of hope for people waiting for rates to drop. During their 2024 Annual Convention & Expo, leaders at the Mortgage Bankers Association presented their 2025 outlook, which included a baseline forecast for mortgage rates to end 2025 at 5.9% and remain close to that level for the forecast horizon.
While nobody has a crystal ball, industry professionals who recently spoke with The Mortgage Note agree that rates will be better for buyers in 2025.
Dr. Lisa Sturtevant, chief economist at Bright MLS, expects rates to fall throughout next year, ending in the high 5’s. She said there are several factors that could drive the direction of rates, including actions by officials at the Federal Reserve.
Investors anticipate that the Federal Open Market Committee will once again cut rates at its upcoming meeting. They lowered the target range for the federal funds rate from its previous level of 5.25% to 5.5% down to 4.75% to 5% in September.
Although the Fed does not dictate mortgage rates, the market often follows its lead.
“But other factors could drive rates lower, as well. For example, while an economic recession is still unlikely, if the economy takes a turn, we would expect mortgage rates to drop more significantly,” said Sturtevant.
Donald Olhausen Jr., owner of WeBuyHousesInSanDiego.com, agrees with Sturtevant that buyers can expect decreases in mortgage rates over the course of 2025. It’s a delicate balancing act for officials at the Federal Reserve, he explained.
“If we see multiple 0.25% rate reductions without economic damage, it suggests that the Fed has successfully achieved a ‘soft landing’,” said Olhausen Jr. “However, if rate cuts are at 0.50%, it indicates that the Fed feels the need to take more aggressive action to prevent a recession.”
Glenn Phillips, CEO and lead economic analyst at Lake Homes Realty, said that while mortgage rates will likely drop next year, decreases in rates will not be dramatic, as it would create too much risk of inflationary responses.
“If rates drop too low too fast, it could actually drive up home prices and fuel inflation,” said Phillips.
Housing is in a tricky spot, he said. While the inventory of homes is improving, there is still a lot of pent-up demand. No matter what direction rates head, costs of homes are likely to continue rising, keeping affordability a concern for buyers throughout next year.
1 thought on “How Much Could Mortgage Rates Drop In 2025? – The Mortgage Note”
The first reductions in price will be in fuels and food as fossil fuel production ramps up. This will lower electricity costs and gasoline and diesel fuels that affect the production of food and lower costs for transportation for everyone. Regulation costs and lower tax rates will accelerate investment in producing American goods and REAL employment in the private sector.
I suggest this will be a time for looking into adjustable rate loans if available as we can expect dropping rates over the next years. However, lenders will be careful lending costly dollars with the prospect of the dropping returns in the future. For renters the relief will come from greater employment opportunities with higher wages as the Trump administration cuts corporate taxes and regulations.
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